Lurking Behind Every M&A Is China

SAN FRANCISCO — There has been much buzz in the global semiconductor industry about the accelerated consolidation of chip vendors. But the biggest untold story this year is the presence at the negotiating table — in almost every M&A deal — of Chinese investors, or U.S.-based private equity funds whose money can be traced back to China.

In deals involving Marvell Technology, Micron, Atmel, Anadigics, Micrel, Pericom Semiconductor, PMC-Sierra, Lattice Semiconductor, Western Digital, and more, Chinese bidders have lurked behind practically every attempted — or speculated — negotiation in the last two years.

Although few Chinese investors have actually acquired big chip vendors thus far, Chinese bidders continue to swarm U.S. and European high-tech companies, according to several semiconductor company executives, academia, industry veterans, and observers interviewed by EE Times in recent weeks.

17 bidders One of the most striking examples is the behind-the-scenes bidding, negotiation, and maneuvering that unfolded in the acquisition of programmable logic supplier Lattice Semiconductor. Lattice announced early in November that Canyon Bridge, a Palo Alto-based buyout fund with ties to the Chinese government, had agreed to buy the FPGA vendor.

The acquisition of Lattice Semiconductor could still hit a snag. At stake is the possibility of rejection by the Committee on Foreign Investment in the U.S. (CIFUS).

Canyon Bridge, it turns out, was one of 17 bidders who competed to acquire Lattice, according to the proxy statement the company filed last month.

The document offers no names. It lists the bidders simply from “Party A” to “Party Q.” But the blow-by-blow bidding history started on June 15, 2015, when “representatives of a financial advisor to Party A, a China-based financial sponsor, contacted Abid Ahmad, a senior advisor to Lattice in connection with strategic transactions.” It illustrates the broad M&A fever that focused on Lattice over 18 months.

Darin Billerbeck

The proxy statement shows frequent trips by Lattice CEO Darin Billerbeck to Beijing to meet with investors labeled A, B, E, and K. Among the bidders, there were many Chinese investors, or U.S.-based funds infused with Chinese money, several industry sources told EE Times.

Increased CFIUS scrutiny? The U.S. government, on national security grounds, is increasingly at odds with an expansive new Chinese effort to spend billions buying foreign high-tech companies. In several cases, the feds have stepped in to circumvent the deal.

For example, Tsinghua Unigroup's planned $3.78 billion investment in Western Digital (and SanDisk) was canceled earlier this year after CFIUS decided to investigate, citing national security.

Last week, President Obama, following a CFIUS recommendation, blocked Fujian Grand Chip, China’s investment fund, from completing a deal with German technology company Aixtron SE.

It’s too early, however, to conclude that the CFIUS has adopted a tighter policy of discouraging Chinese bidders, U.S. semiconductor industry sources cautioned. Instead, Chinese investors, along with a lot of well-paid U.S. lawyers and bankers hired by their Chinese clients, are getting more creative — with complex deals that can either pass CFIUS’ review or moves that minimize scrutiny from CFIUS.

Selling ‘divisions,’ not a whole company One example in which China recently bid successfully for a whole company is ISSI. It was acquired by Uphill Investments, a Chinese investors group, for $731 million in December 2015.

More typical, however, is the Chinese company that snatches up divisions of a big semiconductor company in parcels. These piecemeal acquisitions might be business units that the Western companies no longer value, or divisions making products whose prices have eroded to the point that they’re expendable.

Europe offers a number of examples.

Rob Lineback, a senior market research analyst with IC Insights, pointed out that Jianguang Asset Management Co. Ltd. (JAC Capital) bought NXP's RF Power business for $1.8 billion a year ago. That unit became the privately held company, Ampleon, in the Netherlands. Also, NXP announced the sale of its Standard Products business to JAC Capital and Wise Road Capital in June 2016 for $2.75 billion.

Lineback mentioned that AMD in April 2016 completed a transaction to create a joint venture for IC assembly and testing with China's Nantong Fujitsu Microelectronics. AMD contributed its assembly plants in China and Malaysia and received $371 million in cash plus a 15% stake in the joint venture.